Foreword

In its 11th annual Report on the European Economy, the European Economic Advisory Group at CESifo contributes to public debate over the crisis by analysing intra-European balance-of-payments imbalances as measured by the Target accounts. It discusses the difficult trade-off between short- and long-term risks faced by policymakers, and argues that the euro area cannot avoid a painful process of internal price level realignment to compensate for the missing possibility of external exchange rate adjustments. The Group advocates short-term liquidity help but rules out Eurobonds and other measures undermining investor liability, which would lead the euro area back to a system of excessive capital flows and current account imbalances. The Group reiterates its recommendation to policymakers to introduce the three-stage-crisis procedure described in last year’s report.